Market News

Rogue traders deny State Sh125 billion tax revenue

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The KRA headquarters at the Times Tower in Nairobi. PHOTO | FILE

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Summary

  • KRA says its data suggests fraudulent schemes by domestic firms and multinationals could be depriving Kenya of as much as 8.3 percent of government revenue.

The Kenya Revenue Authority (KRA) now estimates the country loses more than Sh125 billion every year in taxes to shrewd traders who falsify the value of goods and services.

The KRA says its data suggests fraudulent schemes by domestic firms and multinationals could be depriving Kenya as much as 8.3 percent of government revenue, which amounted to nearly Sh1.51 trillion for the fiscal year ended June 2020.

“It is estimated that Kenya’s tax loss from trade mis-invoicing by multinational corporations and other parties could be as high as 8.3 per cent of government revenue according to statistics from KRA,” the tax agency wrote in the brief.

“This clearly hampers economic growth and results in huge loss in tax revenue.”

The estimated trade tax loss is equivalent to Sh125.31 billion of the government revenue in the year through June 2020 and dwarfs previous annual estimates for trade mis-invoicing by Global Financial Integrity ($907 million or Sh98.86 billion in 2013 ) and Africa Tax Justice Network Africa ($400 million or Sh43.6 billion in 2011).

The taxman made the disclosure in a policy brief under the ‘Addis Tax Initiative (ATI)’ which seeks to improve domestic revenue mobilisation for socio-economic development through partnerships with other countries and international organisations.

The ATI initiative, first launched in July 2015, got renewed political commitment last November, dubbed ATI Declaration 2025, which seeks to apply coordinated tax policies in enhancing domestic revenue and combating tax-related illicit financial flows (IFFs).

KRA says it plans to reverse the huge growth in tax losses through “legislative and regulatory measures that posit substantial disincentives for importers and exporters”.

The taxman adds he was closing the revenue leaks by “detecting mis-invoicing as transactions are occurring and taking corrective steps in real-time and recovering lost revenues after mis-invoicing is found through subsequent audits and reviews”.